Koll Buys $500 Million in Union Pacific Property
In the largest transaction in its history, the Koll Co. agreed Tuesday to spend more than a half-billion dollars to buy property in 19 states from Union Pacific Corp, the nation’s second largest railroad company.
After several months of negotiations, Koll agreed to buy 15,000 acres and 30 buildings, much of it in industrial neighborhoods. Koll, a large real estate developer and one of the West Coast’s largest property owners, plans to build on the land.
Although most of the property is in the West, the deal gives Koll a foothold in several Eastern markets, including Washington, and helps the company’s efforts to expand in that direction.
With annual revenues of $6 billion, Union Pacific is selling in order to focus on its transportation businesses and boost its stock price. Its stock jumped $3.125 to $79.75 a share as most transportation stocks rose in Tuesday’s stock market rally.
The company’s chairman, Drew Lewis, said in a statement Tuesday that the real estate sale will help “focus our resources on remaining operations.”
Analysts said the price of $532 million for the real estate was not unreasonable.
UBS Securities Inc., a subsidiary of United Bank of Switzerland, will be Koll’s lender. Koll will buy the property with a partner, which the developer declined to name now. The deal closes in February.
The purchase includes three large industrial parks in Southern California; industrial land in several Northern California cities; an industrial park near Seattle; an office building and land just outside Washington, D.C.; and five buildings and 1,100 acres near Chicago.
Koll also is acquiring land and buildings in Spokane, Wash.; Salt Lake City; Denver; Las Vegas and Reno in Nevada; Houston, Dallas, Ft. Worth, Austin and Corpus Christi in Texas; Lincoln and Omaha, Neb.; Springfield, Mo.; Little Rock, Ark.; and in cities in Oregon and Idaho.
The developer says it owns about $4 billion worth of real estate on the West Coast, much of it acquired since the company began to buy buildings in the early 1980s. Before then Koll owned only buildings it had built itself.
The purchases have since quickened. The company’s previous biggest deal came last year, when it bought $300 million worth of property from Wells Fargo Mortgage & Equity Trust, a real estate investment trust operated by the big San Francisco bank.
Some of Koll’s most visible projects in Southern California are several big office parks in the John Wayne Airport area in Orange County, which the developer is credited with helping build into one of the largest office markets in Southern California.
Privately held Koll will probably sell the Chicago area land and buildings, said Koll Senior Vice President Chuck Schreiber, since the company isn’t interested in that market. But it will keep the property in the Washington area, which consists of a six-story office building and enough land to build two more in Arlington, Va.
Koll is vague on whether it will eventually expand its operations in suburban Washington’s booming office market. “We have no firm commitment now beyond this project,” said Schreiber.
That will be Koll’s easternmost project. The company said it is not quite ready to open a branch office in the nation’s capital and will run the project from its headquarters here. The company’s easternmost branch office is in Dallas, which it opened last year.
The deal leaves Union Pacific with 1,000 acres and several buildings--including a Las Vegas casino and an oil field in Long Beach--still to sell. The railroad has already sold $125 million worth of real estate.
Although analysts concede Union Pacific is generally well run, they said the company is so diverse that investors have trouble figuring out whether the company’s stock is a good buy. The stock has languished at around $75 a share.
The railroad’s management stands to collect sizable bonuses if the stock hits $100 before 1993. Analysts predicted that it would reach that mark well before then.
And, analysts said, the company’s property holdings were likely holding the railroad’s stock price down. Real estate tends to be more valuable when held over a long time rather than as a quick generator of the big earnings prized by investors, but the value is often not recognized by Wall Street.
In addition, the real estate market in some of the cities where the railroad owns property have been declining. Earnings for the railroad’s real estate subsidiary, Union Pacific Realty, dropped from $19 million through the third quarter of 1988 to $9 million last year.
Union Pacific also owns one of the nation’s largest trucking companies, an oil and natural gas company and a hazardous waste management company. Stock analysts said there is talk the company may soon put its oil and gas business up for sale too.
“That’s the crown jewel,” said Michael H. Lloyd, a railroad analyst at Salomon Brothers in New York, referring to the company’s energy holdings. “I wouldn’t be at all surprised to see them announce soon they’re selling it.”
KOLL’S INDUSTRIAL-STRENGTH DEAL
Koll Co. has agreed to acquire 15,000 acres and 30 industrial and commercial buildings from Union Pacific Realty for $532 million. Here are some of the larger properties:
City State Property Ontario California 213-acre industrial park, nine buildings Mira Loma California 288-acre industrial park Carlsbad California 350-acre research center, six buildings West Sacramento California Extensive industrial acreage Stockton California Extensive industrial acreage Seattle Washington Industrial park, five buildings Las Vegas Nevada Union Pacific railroad yard Chicago Illinois 1,100 acres, five buildings Washington District of Columbia Six-story office building
Source: The companies.
